Anti-phoenix measures announced in the 2018/19 Budget

In the budget speech tonight the Treasurer said “We are making sure small businesses don’t get ripped off by other businesses who deliberately go bust to avoid paying their bills, with tough new anti-phoenixing measures.”

Budget paper #2 available here provides more detail:

Reforms to combat illegal phoenixing

The Government will reform the corporations and tax laws and provide the regulators with additional tools to assist them to deter and disrupt illegal phoenix activity. The package includes reforms to:

• introduce new phoenix offences to target those who conduct or facilitate illegal phoenixing;
• prevent directors improperly backdating resignations to avoid liability or prosecution;
• limit the ability of directors to resign when this would leave the company with no directors;
• restrict the ability of related creditors to vote on the appointment, removal or replacement of an external administrator;
• extend the Director Penalty Regime to GST, luxury car tax and wine equalisation tax, making directors personally liable for the company’s debts; and
• expand the ATO’s power to retain refunds where there are outstanding tax lodgements.

Illegal phoenixing involves the deliberate misuse of the corporate form. It affects all working Australians, including: customers who get scammed by not receiving their paid goods or services; small business and sole-trader creditors through lost payments; employees through lost wages and superannuation entitlements; and ultimately all Australian taxpayers through lost tax revenue. In addition, illegal phoenix operators gain an unfair advantage over their honest competitor businesses, which has a broader economic impact.

In fiscal balance terms, the cost to the budget of extending the Director Penalty Regime is estimated to be $40.0 million over the forward estimates, as existing GST debt is collected and paid to the States and Territories. There is no revenue impact in fiscal balance terms over the forward estimates as the GST and related liabilities have already been recognised. In cash terms, this initiative is estimated to have nil net financial impact on the Commonwealth. The expansion of the ATO’s ability to retain refunds is estimated to have a small but unquantifiable gain to revenue over the forward estimates period.

The reforms to combat illegal phoenixing complement and build on the work of the Government’s Phoenix, Serious Financial Crime and Black Economy taskforces, and other announced reforms such as a Director Identification Number, a combined black economy and illegal phoenixing hotline, and reforms to address corporate misuse of the Fair Entitlements Guarantee and to tackle non-payment of the Superannuation Guarantee Charge.”

Many of these measures were the subject of consultation in October 2017, as discussed here, but there are some new measures, namely the extension of the directors penalty notice regime and expansion of the ATO’s power to retain refunds.